How US Regulation May Lead to Crypto Evasion

If you dabble in cryptocurrencies or have been following and investing using a crypto trading bot or the old-fashioned way with your two hands and brain, you probably know that the US and crypto market have a love-hate relationship. 

With Biden proposing new crypto taxing rules, the crypto community is considering moving away from the country. Let’s look back on this conflictual history between the two and what it could mean for the future of cryptos.

FTX: The First Domino

FTX Trading Ltd., once a prominent player in the cryptocurrency exchange landscape, experienced a dramatic downfall that led to bankruptcy and a cascade of scandals. Valued at a staggering $40 billion, the firm was known for its specialisation in trading crypto derivatives. However, this success story took a drastic turn. Ultimately unravelling FTX and its founder, Sam Bankman-Fried. Like other crypto trading bot features, FTX offers a bot to be used with a number of different strategies. 

Sam Bankman-Fried’s journey took a turn as he faced new charges related to bribery involving Chinese officials. Having been at the helm of FTX, a cryptocurrency exchange firm known for its focus on crypto derivatives trading, Bankman-Fried’s position shifted from a leading figure in the industry to a central figure in a series of legal controversies. The US has faced a number of changes since this first domino. 

Crypto’s Golden Boy’s Promising Beginnings

FTX distinguished itself from other cryptocurrency firms by buying and selling crypto derivatives. Operating across various regions, including the US, Europe, and Hong Kong, the platform supports multiple cryptocurrencies. In addition to its proprietary token FTT, FTX facilitated trading in prominent cryptocurrencies. Tokens such as Bitcoin, Ethereum, Ripple, and Tether, boasting a substantial selection of over 300 trading pairs.

The inception of FTX can be traced back to May 2019. When Sam Bankman-Fried and Gary Wang, both graduates of the Massachusetts Institute of Technology, co-founded it. Bankman-Fried brought expertise from the world of ETF trading, while Wang’s background included a stint at Google. The company’s growth trajectory was notable, with investments pouring in, and by October 2021, it achieved a valuation of $25 billion. A pinnacle was reached when FTX’s valuation soared to $32 billion. Its American counterpart, FTX America, garnered a valuation of $8 billion following a significant investment influx in January 2022.

The Lightning Speed Collapse of FTX

The events that led to FTX’s collapse unfolded rapidly. Bankman-Fried’s resignation as CEO and the announcement of the company’s bankruptcy via Twitter on November 11, 2022, sent shockwaves through the industry. By November 17, FTX was officially declared bankrupt, dragging its 101 debtors into a Chapter 11 bankruptcy filing. The turning point seemed to be Changpeng “CZ” Zhao’s revelation. Binance would sell its FTT tokens due to concerns about financial trends linked to Bankman-Fried. This announcement catalysed the chain of events that culminated in FTX’s downfall.

At the core of FTX’s demise lay a liquidity crisis centred around the FTT token and Alameda Research Company, Bankman-Fried’s trading firm. Bankman-Fried’s decision to move substantial sums, up to $10 billion, of FTX customer funds to Alameda, primarily held in the FTT token, exacerbated the situation. CZ’s announcement of Binance’s intention to divest from FTT triggered a surge in customer withdrawals, ultimately contributing to FTX Group’s bankruptcy. A heightened rate of customer withdrawals was observed in the days leading up to the bankruptcy filing.

The aftermath of FTX’s collapse saw the arrest of Sam Bankman-Fried on December 12, 2022. Charged with multiple counts including wire fraud, money laundering conspiracy, commodities fraud, securities fraud conspiracy, and campaign finance violations conspiracy, Bankman-Fried faced serious legal battles. With up to five new criminal charges, he mounted a defence, seeking the dismissal of ten of the charges against him.

How The SEC Broke The Brokers

The crypto markets primarily exist thanks to online brokers, namely, Binance, Kraken, and Coinbase, to name a few. The US Securities and Exchange Commission (SEC) started by scrutinising Binance. This can be attributed to the FTX situation. The Chinese giant was accused and charged for misleading investors, and the SEC decided to set new regulations. These new regulations allowed the SEC to charge Binance with unregistered and illegal cryptocurrency exchanges.

What the SEC calls securities, which brokers must register with before trading with US customers, has also led to legal action against Coinbase. However, Binance and Coinbase have replicated this with legal actions of their own. They claim the initial SEC filing was too opaque and without foundation. 

Meanwhile, the American Coinbase has been thinking about its options to move out of the US. After considering the Bermudas, it finally decided to establish its headquarters in Canada. This is a massive loss for the US economy, since Coinbase is estimated at around $17 billion at the moment.

Lay It On Thick, Joe!

Joe Biden’s administration, meaning the IRS and the US Department of the Treasury, have recently proposed rules that aim to make cryptos assets people would need to report at the end of the year, like any other asset. The goal is also to tax people further to prevent fiscal evasion. 

However, it’s seen by the crypto community as a false solution. Something that would make crypto in the US lose any appeal and make investors shy away from the country. If these rules were to be applied, the government would lose a lot economically. Don’t forget to check our weekly news review to stay up-to-date with cryptocurrencies.